The so-called Fly America rule was enacted by Congress in PL 93-623, Section 1117, 03JAN1975, and is codified at 49 USC 40118.

Fly America Applicability to Assistance Awards

Although I've heard some reasonable authorities question the applicability of "Fly America" to grant recipients, it seems quite clear to me that Congress intended this rule to be applied to USG-funded assistance awards.

The language of the statute (“pursuant to the terms of any contract, agreement… where payment is made from funds …granted, or conditionally granted…for the account of any…other organization, of whatever nationality…any transportation of persons…between a place in the United States and a place outside thereof or between two places both of which are outside”) makes clear that the term “instrumentality” as used in 49 USC 40118 encompasses the full language of the statute, as cited immediately above.

You'll have to read it for yourself and decide. But regardless of what you think about the legal applicability of the rule, you may rest assured that federal awarding agencies generally require assistance award recipients to comply with this rule.

Although the GSA’s FTR applies almost exclusively to Federal employees, it is nevertheless the Executive Branch's implementation of the Act. Thus, Federal awarding agencies invoke these (Fly America) parts of the regulation as the regulatory definition of “available” and “reasonably available” in the Code. (The Code language in question is at 49 USC 40118(a)(3)(A) & (B).) The GSA’s rules help to standardize the determination of availability of US flag carriers.

In any case, recipients should expect agreement provisions to require the use of US flag air carriers "consistent with 49 USC 40118," and everyone should accept the FTR as the governing interpretation of that law.

Best Approaches to Compliance

Comply with 41 CFR 301-Parts 10.131 thru 10.143 for all international air travel funded by the award.

Or, for a reasonable distillation of the FAR language, follow the directives of USAID’s Mandatory Standard Provision “TRAVEL AND INTERNATIONAL AIR TRANSPORTATION (December 2014),” which assures compliance without even referencing the Act, the FTR or the bulletins on Open Skies (see below). (Find USAID's Standard Provisions for US recipients here.)

Footnote on Open Skies

"Open Skies" refers to a collection of bilateral and multilateral air transportation agreements. Effectively, travel on non-US flag carriers of countries who have signed acceptable agreements with the US is allowable as equivalent to travel on a US flag carrier, under the regulation. See 41 CFR 301-10.135.

From time to time, the GSA issues FTR Bulletins containing guidance on the effects of various bilateral and multilateral agreements. Two key bulletins are:

The USAID Standard Provision (M17 TRAVEL AND INTERNATIONAL AIR TRANSPORTATION (December 2014)) specifies EU, Australian, Swiss and Japanese flag carriers as compliant with Open Skies (and thus as allowable as US flag carriers), when travel is to or from one of those countries.

Footnote on City Pairs

"City Pairs" refers to fare rates negotiated in advance by the USG for routes frequently used by USG employees on official business of the USG.

The FTR requires USG employees to use city pair fares whenever they are available. And the USAID Standard Provision refers to this in saying (at M17.b(2)(ii)) “when no city pair fare is in effect for that leg.”

One might think that award recipients would thus be required to make use of city pair fares when available. But the catch is that city pair fares may only be used for travel by USG employees. See this FAQ: http://www.gsa.gov/portal/content/103835#3, item 3.

This question of how city pairs fares impact recipient travel has been debated over time. Conservative readers (and some federal agencies) have understood it to mean that the Open Skies exception may not be used by recipients/contractors if a city pair fare is in effect on a given route. FTR 11-02 clarifies this question by stating (quite clearly) that the existence of city pair fares does not affect the allowability of flights undertaken by entities who can't use city pair fares (e.g. assistance recipients and contractors).

Here's another helpful resource compiled by someone at Rice University: international travel decision tree. Use at your own risk. Note that the flow chart on page one seems to exclude Open Skies carriers when a city pair fare is in effect. But further note that on page two the effect of FTR Bulletin 11-02 is underscored. You might want to revise the flow chart, if you use it at all.